T-Mobile Takes Out Some Handset Unlockers

from the the-only-confused-people-here-are-us dept

T-Mobile has won damages and an injunction (via Phone Scoop) against several companies that were taking bulk quantities of its prepaid handsets, unlocking them, and then reselling them. The company calls such activity "prepaid phone trafficking," when it's really just exploiting a poor business model. As in other suits filed by other operators, it sounds like T-Mobile based this one on copyright or trademark claims, saying "Consumers are harmed and may be misled about the source and origin of their mobile phones... Because the phones may still carry T-Mobile's brand, consumers may believe they are purchasing handsets manufactured for T-Mobile and covered by original warranties." That's slightly counter-intuitive: T-Mobile says the unlockers made their money by buying handsets locked to the operator, then unlocking them so they could charge a higher price when they were resold. According to T-Mobile, the phones carried a higher price, weren't sold in original packaging and didn't come with manuals. They were also, presumably, accompanied by advertising playing up the fact that they could be used on any operator's network. All of this combined would seem to make it pretty clear to buyers that they weren't buying an original, "official" T-Mobile product. So where's the basis for the confusion claims?

Re: Analogs?

Game console mods, but those are possibly illegal due to DMCA, but not trademark. Even then, you could mod a game console in a way that has nothing to do with modchips and you'd be fine (think Ben Heck's mods).

Yeah, cars are another good example. Modded cars often sell for more than the original price.

Re: Confusion?

Better Business Model

Carlo points out that T-Mo have simply offered a bad business model. It's true: if your business model encourages arbitrageurs as much as customers, you need to bo back to the drawing board.

Now, the goal with prepaid phones is to make the initial price of the phone very cheap, so that, frankly, poor folks can afford one, and then pay you about 30 cents a minute for prepaid phone use (which compares to the ~8cents/minute that high volume post-paid customers pay).

The notion is to offer a free phone (the first crack hit) and to charge more for subsequent hits (prepay refills). To assure that the phone, which is offered at a substantial discount, is used on T-Mo, they lock it to T-Mo SIM cards.

It's not a bad or dishonest model, and it has worked for years for razor companies and inkjet printer makers. Often, this is the best option for low-income people who make infrequent calls.

But by selling a phone at well below market price, they open themselves up to arbitrageurs. Once the phone is unlocked, it is worth more, and thus the arbitrageurs buy low and sell high. But what is wrong with that? T-Mo offers phones for sale, these guys buy them. When the own the phone, they unlock THEIR property, and then they sell their property. Seems like T-MO's problem for selling them too cheaply.

So, instead of just SIM locking:

- why not sell them with a signed agreement NOT to unlock it for 24 months - then the arbitrageurs really WOULD be in breach of a contract?

- Or why not sell it with $50 of T-MO prepaid minutes attached to that unique phone, which may drive up the initial price, but would certainly scare off the arbitrageurs?

- Or how about leasing the phone so that it remains T-MO property, keeping the effective price low, and retaining legal control of the device?

There are dozens of business models that would satisfy the target market, but leave little opportunity for the arbitrageurs. It should be T-MO's (and Tracfone, and other pre-paid providers, too) job to solve this, not our court system's. This is like HP whining that people are using non-HP ink in their printers using non-HP ink in their printers...tough luck!

How is it noone understands? Amazing!!!

Idiots!! The product is susidized by T-Mobile for a fraction of it's value for the sole porpose that it is used on their network only with pre-paid cards..Apple or none of the other companies people have given as examples subsize their products like this. There should be something in the paperwork of the product to state this and if there is then they have every right to sue,If not then T-mobile needs to add something to this effect to the product.

chrissy- I am sure they would sell it at cost if the people that would buy this type of product could afford that easily enough